Alcoa kicked off the earnings season last night, and the SP500 fell to 1295, just above the 1290 Q1 earnings season low that formed on April 18.

The daily chart below shows 1) a potentially bearish 50 day H-H-H head and shoulders pattern. Long Term Bullish Investors take heed and remember that financial markets are first and foremost irrational critters, so every single rational argument that you make that forward valuations are cheap become nonsensical in 1) a sovereign debt or credit crisis and 2) a counter-cyclical environment that is typically encountered during austerity regimes and fiscal prudence.

Yes, there are certainly bullish price targets above 1400 to go get if all goes well for the bulls in 2H 2011, but as of now, things are not going so peachy-keen for you guys at the moment. Yes, there are plenty of bullish inputs to right the listing goodship lollipop for the balance of the week and I note them in the green text inside the big box on the chart below.

One would think that with the upcoming bullish inputs this week that the sky is the limit on the upside. Let's enumerate

1. Last months June 13 Chinese retail sales and IP gave the SP500 a one day 27 point bounce on the way to its final June swoon lows.
2. Last yr, the SP500 rallied 30 points intraday on the July 20 EU bank stress test results, and those results contributed to a 73 point rally in two weeks.
3. Earnings and bullish US data helped the SP500 rally 83 points off the 1290 Q1 April 18 earnings season low over a two week period.
4. Bank confidence and their animal spirits should be bolstered this week by 3-4 considerations: 1) getting out of mortgage fraud liability on Wed 2) Bernanke's Senate Testimony on Wed-Thurs, 3) denying Warren the head of the consumer protection agency on Thurs, and 4) those EU bank stress test results on Friday.
5. Less inflationary data that will help the struggling consumer on Thurs-Fri
6. An uptick in consumer sentiment and core retail sales on Thurs-Friday as gas prices declined 10% last month.

If all these considerations ahead of Apple's earnings next Tuesday can't push the SP500 back above 1350, the risk that this is a bearish head and shoulder pattern completing in July 2011 will be strongly reinforced.

Click on image to enlarge!

For more from John Bougearel, visit Structural Logic